By the end of the following decade, the rise in British gas production from new fields developed in the North Sea meant that the Canvey Island facility was no longer needed.

Now once again Algeria is preparing to deliver LNG to the Thames estuary as the UK, the largest gas producer in the EU, faces up to the fact that indigenous supply will no longer be sufficient to cover demand.

The additional gas supplies required by the UK form part of a much larger EU-wide supply gap, projected to reach 136 million tonnes of oil (equivalent to 150 billion cubic metres) per year by 2020, according to Brussels-based industry association Eurogas.

LNG from Africa, the Middle East and the Caribbean will account for some of the additional supplies. Gas delivered by pipeline from Russia, Norway and North Africa will cover the remainder.

At present, indigenous production accounts for around two thirds of the EU’s total gas demand of 381 billion cubic metres/year (bcm). By 2020, Eurogas forecasts that demand will rise by 43% to 543 bcm and more than half will have to be satisfied by imports.

LNG now accounts for only some 5% of European gas supplies. By 2020, that is expected to rise to 15- 20%.

LNG is the fastest growing segment of the global energy market, with much of the growth in projected demand coming from the US, as well as Europe. There are now only 12 LNG exporters in the world, exporting some 150 bcm in total.

That figure is likely to increase to more than 500 bcm by 2020, with up to 30 exporting countries accounting for about 13% of global gas demand.

Much of the impetus for new LNG supplies is coming from major oil companies. The project to supply Algerian LNG to the UK, for example, is being carried out by BP in partnership with the Algerian state energy company Sonatrach. The agreement with National Gas Transco (NGT) calls for the two partners to meet the initial requirement of 4.4 bcm at Kent’s Isle of Grain LNG terminal over 20 years from 2005. The agreement does not specify where the gas must come from, but a significant portion is likely to be sourced from fields developed by BP and Sonatrach in Algeria.

BP has also indicated that it may meet some of its 50% share in the deal from other sources, such as the Atlantic LNG facility in Trinidad and Tobago.

Also lining up to ship LNG to the UK is ExxonMobil Corporation, the principal foreign partner of Qatar Petroleum in the development of a string of LNG export schemes in the Gulf state. The partners have proposed to supply some 10 bcm of LNG to a new terminal to be built at Milford Haven, on the Pembrokeshire coast of Wales, from 2008.

European utility companies are also getting involved in the LNG market, not just as buyers of the gas, but as investors in export terminals and even in exploration and production activities. Spain’s Union Fenosa set a precedent in 2000 when it branched out from its core business of generating electricity and signed an agreement to build an LNG plant in Damietta, on Egypt’s Mediterranean coast.

This plant is scheduled for completion by 2005. It will supply 6.5 bcm of gas to Spain, which is already Europe’s largest LNG importer. The Spanish company has yet to venture into the upstream area of gas exploration and production, something that Gaz de France (GdF) is already heavily involved in, alongside its main role as an importers and distributor of gas in France. GdF has a minority stake in another Egyptian LNG project at Idku, east of Alexandria, in which the leading investor in the UK’s BG Group.

The French company will buy the entire output of 5 bcm from the first train at Idku according to a 20-year agreement. BG has said it will sell the initial output from the second train to the US, before switching to Italy by 2008, when it has completed construction of a new LNG import terminal at Brindisi.

For suppliers of gas to the European market, whether by pipeline or as LNG, the EU liberalization plans are an issue of critical importance. A more open gas market is likely to increase demand, to the advantage of suppliers, but it has potentially damaging consequences for long-term supply contracts.

This is because of the moves by the European Commission’s Competition DG to outlaw so-called destination clauses in sales contracts that prevent the importer from reselling the gas to other countries.

The suppliers are concerned that, in the event of such sales, they will not be able to share in any of the profits.

In a landmark deal announced by the EU last month, an agreement has now been reached to eliminate destination clauses from gas sales agreements between Italy’s Eni and Russia’s Gazprom, two of the biggest players in the European gas market.

The deal means that Eni will be free to take gas to any destination from the two delivery points agreed with Gazprom. The Italian firm has also undertaken not to include destination clauses in any of its import agreements with other suppliers. Gazprom, in turn, will be entirely free to sell gas to other Italian companies.

The Eni-Gazprom deal has increased the pressure on Algeria’s Sonatrach to follow suit. The Algerian firm has been seeking to adapt the destination clause to allow for profit-sharing on sales to third parties.

However, the EU has rejected this, and Sonatrach has little option but to fall into line with the demand for an unconditional deletion of the destination clause from its contracts.

Of particular concern to Sonatrach is the prospect of its European LNG customers taking advantage of spikes in US gas prices to sell spot cargoes across the Atlantic.

However, given the bullish growth forecasts for LNG demand on both sides of the Atlantic over the next two decades, large established producers and exporters of gas are in an enviable position.

David Butter is the Middle East business editor of the Economist Intelligence Unit.